ODAC Newsletter - Jan 15

Welcome to the ODAC Newsletter, a weekly roundup from the Oil Depletion Analysis Centre, the UK registered charity dedicated to raising awareness of peak oil.

Oil prices began the year with a rally, reaching nearly $84 a barrel as temperatures across much of the northern hemisphere required the heating to be turned up a notch. Prices began dropping back into the $70-80 range this week on not so hot economic news from the US, and on reports that Chinese authorities had moved to raise bank reserve requirements to prevent a credit boom after announcing strong export results for December. Any oil demand growth for 2010 is anticipated to come primarily from China and other developing economies rather than OECD nations. With some fearing that China’s economy will be the next bubble to burst there is much uncertainty as to which way the price is going to go.

Iran blamed the US and Israel for a bomb attack which killed a man described by Iranian media as a “nuclear physicist” – although those claims were soon exposed. The continued political tension both inside Iran and internationally in connection with its nuclear program is one of the geopolitical areas most likely to affect oil prices and supplies in 2010. Other possible flashpoints could be Iraq where elections will be held in March; Venezuela where Hugo Chavez faces a challenging year which has begun with power blackouts and a devaluation of the currency; and Nigeria where President Umaru Yar’Adua’s health may force a change of leader and thus threaten the fragile peace following last year’s amnesty with militants.

The UK began 2010 with freezing temperatures eliciting the issue of 4 gas balancing alerts from the National Grid. In the event, although some businesses on interruptible contracts were cut off for a short time last week, the system squeaked through. The weather has highlighted the UKs increasing reliance on imported gas and lack of storage facilities at a time when dependency on gas imports is only likely to rise as domestic supplies decline and old coal and nuclear plants are closed down.

Plans to exploit domestic renewables were given a boost early in the year with the Crown Estate’s announcement of successful bidders for its nine 3rd Round offshore wind zones. According to the press release, a quarter of UK power needs could eventually be met from this round of bids alone. The challenges of wind power were however thrown into focus by the long period of high pressure which brought both the freezing weather and still conditions. Plans for a North Sea supergrid are aimed at mitigating such an impact.

The multiple challenges of profound oil and gas dependency in a world approaching peak oil, carbon emissions and infrastructure obsolescence - not to mention the deepest recession for decades - point to tough years ahead. So far the political response has been to try to preserve business as usual but paint it with a slightly greener brush. Will 2010 be the year which elicits a new realism that we now face real limits to growth which will require fresh ideas and a new approach? Happy New Year!

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Oil

Crude oil fell for a fourth day as U.S. retail sales unexpectedly weakened and jobless claims rose, indicating that the economy will be slow to recover.

Oil extended its longest decline in a month as sales at U.S. retailers slipped 0.3 percent in December, after a 1.8 percent jump in November, according to the Commerce Department in Washington. Weekly jobless claims climbed 2.5 percent, the most in five weeks, the Labor Department said...

McMoRan Exploration Co. and Energy XXI (Bermuda) Ltd. discovered what may be one of the biggest oil finds in decades in shallow waters of the U.S. Gulf of Mexico. Shares of both companies jumped 40 percent or more.

The well, drilled 10 miles (16 kilometers) from shore in 20 feet (6 meters) of water, found a 135-foot column of oil- and gas-soaked rock in four zones of the Davy Jones prospect, Energy XXI said today in a statement. The hole was drilled to 28,263 feet below sea level, or almost as deep as Mt. Everest is high...

BP overtook Royal Dutch Shell in market capitalisation for the first time in more than three years on Monday, reflecting the contrasting fortunes of the two rivals for the title of Europe’s biggest oil company...

National Grid issued a gas balancing alert, its fourth warning in a week, when pressure dropped over the weekend in the Langeled pipeline that delivers gas from Norway to a terminal in eastern England...

All the recent panic about UK gas supplies hasn’t developed into any kind of lights-off crisis. If anything, it has shown that the eminently sensible National Grid has a good warning system in place to make sure industry is flexible about switching from gas to other forms of generation when there are exceptional weather conditions or production problems.

But what the current situation does highlight is some of the cracks in the UK’s energy planning pipeline that could develop into real shortages in future. One of the most worrying examples is our dependence on coal as a back-up fuel when there is abnormal demand for gas in cold weather. At the moment, our emergency coal-fired stations are hurtling along at full capacity to help warm and power homes and businesses...

The Government has approved a big underground gas storage facility in Cheshire that will substantially increase UK capacity and reduce occurences of seasonal price rises and domestic and industrial shortages.

King Street Energy is to develop ten underground caverns in the extensive salt deposits of Northwich, Cheshire, the Glasgow-based gas storage developer said yesterday. In a sign of rising concern over the UK’s lack of gas storage, the plan for the 240 million cubic metre facility won government approval within five months of a planning inquiry ending. Previous projects have had to wait for up to 18 months...

The U.S. Energy Information Administration on Tuesday slightly raised its estimate for domestic natural gas production in 2010 but still expected output this year to be down 3 percent from 2009 levels...

British business has had it tough in the big freeze. Consumers have turned up the thermostat to counter the plunging temperatures and industry has had to suffer power cuts to make up the shortfall. Angst over national power supplies has rarely been so severe.

Yet the solution for the office, the factory or the depot may lie not in billion-dollar international energy deals but on its doorstep. IGas, a coal-bed methane group, began a campaign yesterday to persuade large energy users to allow it to set up mini-gas production facilities on their sites and supply them directly with a substantial proportion of their gas requirements...

Electricity

The internet and other communications networks could use one-ten-thousandth of the energy that they do today if smarter data-coding techniques were used to move information around. That's the conclusion of Bell Labs, the research centre in Murray Hill, New Jersey, where both the laser and transistor were invented.

The lab has launched a consortium of networking and computing firms called Green Touch that is committed to developing new power-saving technologies. The initial goal is to cut power use in the global telecoms network by 99.9 per cent by 2015...

A steep increase in the number of gas-fired power stations has been approved by the government, raising fears about the growing pressure on future gas supplies.

This new “dash for gas”, along with the huge investment in wind power launched by the government on Friday, reinforces concerns that Britain’s infrastructure may become more vulnerable to extreme weather and supply disruption...

The cold weather has been accompanied by high pressure and a lack of wind, which meant that only 0.2pc of a possible 5pc of the UK's energy was generated by wind turbines over the last few days.

Jeremy Nicholson, director of the Energy Intensive Users Group (EIUG), gave warning that this could turn into a crisis when the UK is reliant on 6,400 turbines accounting for a quarter of all UK electricity demand over the next 10 years...

It would connect turbines off the wind-lashed north coast of Scotland with Germany's vast arrays of solar panels, and join the power of waves crashing on to the Belgian and Danish coasts with the hydro-electric dams nestled in Norway's fjords: Europe's first electricity grid dedicated to renewable power will become a political reality this month, as nine countries formally draw up plans to link their clean energy projects around the North Sea...

Economy

As much of the world struggles to clamber out of a serious recession, a gradual flow of economic power from West to East has turned into a flood.

New high points, it seems, are reached daily. China surged past the United States to become the world’s largest automobile market — in units, if not in dollars, figures released Monday show. It also toppled Germany as the biggest exporter of manufactured goods, according to year-end trade data. World Bank estimates suggest that China — the world’s fifth-largest economy four years ago — will shortly overtake Japan to claim the No. 2 spot...

President Hugo Chávez's decision to devalue Venezuela's bolivar and impose a complicated new currency regime may paper over some growing cracks in the economy, but it is also setting the stage for bigger problems down the road for the country's oil-rich nation and its populist leader.

Over the weekend, there were signs that Mr. Chávez's slashing of the "strong bolivar" currency could create as many problems as it solves in Venezuela's economy, provoking a wave of anxiety that sent Venezuelans scurrying to spend cash they feared could soon be worthless...

The labour force contracted by 661,000. This did not show up in the headline jobless rate because so many Americans dropped out of the system. The broad U6 category of unemployment rose to 17.3pc. That is the one that matters. Wall Street rallied. Bulls hope that weak jobs data will postpone monetary tightening: a silver lining in every catastrophe, or perhaps a further exhibit of market infantilism.

The home foreclosure guillotine usually drops a year or so after people lose their job, and exhaust their savings. The local sheriff will escort them out of the door, often with some sympathy –– just like the police in 1932, mostly Irish Catholics who tithed 1pc of their pay for soup kitchens...

Britain has got the shopping habit back: we may only now be clambering out of the worst recession in living memory, but John Lewis has scored its best Christmas ever, Next clocked up a healthy festive season, and Boxing Day kicked off with jostling queues of bargain-hunters outside shopping centres determined not to miss a moment of the sales.

For long-suffering retailers, and the gleeful shoppers themselves, that feels like good news, but should we welcome the return of the spendthrift habits that plunged us into crisis in the first place, or is it time to ask if traditional metrics of economic success – retail sales, house prices, even GDP growth – really point us in the right direction?...

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